Wynn Resorts Could Shine in 2024 as Macau Stocks Rebound

Posted on: January 7, 2024, 05:00h. 

Last updated on: January 8, 2024, 11:08h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts (NASDAQ: WYNN) could be a star among gaming stocks this year, as Macau’s rebound continues taking shape.

Wynn Macau
Wynn Palace in Macau. The casino enclave could lift Wynn stock this year.(Image: Bloomberg)

That’s the take of Stifel analyst Steven Wieczynski, who in a recent report to clients, extolled a preference for Macau operators in 2024. In the lone Chinese territory where casino gaming is permitted, Wynn’s Wynn Macau arm runs two integrated resorts. Wieczynski reiterated a “buy” rating on the Wynn Palace operator while boosting his price target on the stock to $133 from $125. That implies upside of 40% from the Jan. 5 close.

As we enter 2024, we continue to be baffled as to why Macau-centric stocks continue to trade so poorly,” wrote the analyst. “We fully understand and appreciate the China macro fears that continue to plague the investor mindset, but haven’t we seen this story play out in the U.S. for the last 18 months? What we mean by that is investors have been nervous about the U.S. macro landscape for some time, yet the majority of our coverage universe continues to witness healthy/strong consumer demand.”

Wynn Resorts stock gained about 10% last year. But the Hong Kong-listed shares of five of the six Macau concessionaires, including Wynn Macau, slumped last year, and now reside at valuations that reflect harsh economic conditions that aren’t at play.

Wall Street May Be Too Conservative

While Wynn stock lagged the broader market last year, it should not be overlooked that its domestic venues on the Las Vegas Strip and Encore Boston Harbor notched revenue records. In Macau, which typically accounts for two-thirds or more of Wynn’s top line, there are ample tailwinds.

Highlighting long term potential with Wynn shares are factors including still lingering pent-up demand by Chinese nationals to travel to Macau, and Wynn’s ability to shift its focus to premium mass clients, which is pertinent because a material recovery among VIPs could be further out.

“While we remain ahead of consensus, we believe the current consensus forecast remains overly conservative and embeds some macro softness entering the market,” added Wieczynski. “Based on the backlog of pent-up demand, the improvement in infrastructure, and the massive savings rate in China, we believe our forecast is more realistic and believe the consensus forecast will eventually end up closer to our forecast.”

Wynn stock currently trades at a 3x discount relative to long-term averages, according to the analyst.

Premium Mass Focus Could Lift Wynn Stock

Wynn’s ability to shift away from the embattled VIP segment to a stronger emphasis on Macau premium mass clients could pay dividends on another front. Should the Chinese economy remain sluggish, premium mass bettors are more likely than mass market peers to continue visiting the casino enclave.

That’s one reason Stifel prefers Wynn to rival Las Vegas Sands (NYSE: LVS). While the latter is the largest Macau operator, it’s more dependent on mass market players than is Wynn.

“With (Wynn) shares now trading at a 25%+ discount to their normal historical valuations, we believe that discount is pricing in a significant amount of recovery time or macro pressures, which we believe are overdone,” concluded Wieczynski. “Saying that another way is that if we assume the market comes back fully (not embedded in our revised estimates), there could be significant upside to our price targets.”